Financial Accounting and Reporting

EASY

1. The essential characteristics of an asset include all of the following, except

a. The asset is tangible.

b. The asset is the result of a past event.
c. The asset provides future economic benefit.
d. The cost of the asset can be measured reliably.

2. Bonds without collateral security are called

a. Junk bonds
b. Debenture bonds
c. Mortgage bonds
d. Serial bonds

3. All of the following are represented in FRSC, except

a. Board of Accountancy
b. Bangko Sentral ng Pilipinas
c. Bureau of Internal Revenue
d. Department of Budget and Management

4. The sale of a building for cash would be classified as what type of activity on the cash flow
statement?

5. The following information applies to Penguin Company for 2018:

Beginning inventory 30,000

Purchases 200,000
Purchase returns 10,000
Ending inventory 50,000
Freight-in 20,000

How much was the cost of goods available for sale?

6. Which of the following is not an enhancing qualitative characteristic?

a. Validity
b. Understandability
c. Comparability
d. Timeliness

7. Inventories should be measured at

8. At the beginning of 2018, Hasmin Company purchased a sewing machine at a cost of
P42,000. The machine has an estimated useful life of 5 years and estimated residual value of
P3,250. Under the straight-line method, how much depreciation should Hasmin Company
report in 2018 for financial reporting purposes?

a. 7,500
b. 7,750
c. 7,250
d. 7,252.25

9. An example of an expense classification by function is

a. Income tax expense

b. Interest expense
c. Cost of goods sold
d. Finance cost

10. Issued shares refer to the number of shares

a. Outstanding plus treasury shares

b. That can be issued
c. Reacquired by the company
d. In the hands of shareholders

AVERAGE

1. Slayer Company had the following transactions during the first quarter:

Loss from earthquake 500,000

Payment of fire insurance premium for calendar year 100,000
Ordinary repairs to equipment 125,000
Advertising of a new product 225,000
Year-end bonuses to employees 700,000

What total amount of expenses should be included in the income statement for the first
quarter?

2. On December 31, 2018, Warframe Company has outstanding purchase commitments for
50,000 gallons at P25 per gallon of raw material.

It is determined that the market price of the raw material has declined to P19 per gallon on
December 31, 2018 and it is expected to decline further to P15 in the first quarter of 2019.

What is the loss on purchase commitment that should be recognized in 2018?

a. 300,000
b. 1,000,000
c. 125,000
d. 250,000
3. On January 1, 2018, Deadeye Company had a credit balance of P150,000 in its allowance for
uncollectible accounts. Based on past experience, 2% of the company's sales have been
uncollectible. During 2018, Deadeye Company wrote off P125,000 of uncollectible accounts.
Credit sales and cash sales for 2018 were P4,210,000 and P2,270,000 respectively.

In its December 31, 2018 balance sheet, what amount should Deadeye Company report as
allowance for uncollectible accounts?

a. 125,100
b. 234,200
c. 209,100
d. 109,200

4. For financial assets classified as available for sale, how are unrealized gains and losses
reflected in shareholders' equity?

a. They are not recognized.

b. They are a component of other comprehensive income.
c. They are reported either as an addition or deduction to retained earnings.
d. None of the above.

5. On December 31, 2018, Monkey Company had the following balances in the bank:

Checking account #101 240,000

Checking account #201 (107,000)
Time deposit account - 30 days 255,000
180-day treasury bill, due February 10, 2019 420,000
90-day treasury bill, due February 25, 2019 330,000

What amount should Monkey Company report as cash and cash equivalents?

6. EPS disclosures are

a. Encouraged for all public and nonpublic entities

b. Required for public entities and encouraged for nonpublic entities
c. Required for nonpublic entities and encouraged for public entities
d. Required for all public and nonpublic entities

7. Warlock Company acquired land and paid in full by issuing P500,000 10 percent bonds
payable and 25,000 ordinary shares with par value of P12. The shares were selling at P19 each
and the bonds were trading at 102.

What amount should be recorded as the cost of the land?

a. 975,000
b. 985,000
c. 885,000
d. 875,000
8. JPIA Company purchased a patent on January 1, 2015 for P428,400. The patent was being
amortized over its remaining legal life of 15 years. At the beginning of 2018, JPIA determined
that the economic benefits of the patent would not last longer than 10 years from the date of
acquisition. What amount should be reported in the statement of financial position as patent,
net of accumulated amortization on December 31, 2018?

9. Which of the following is a method to generate cash from accounts receivable?

a. Factoring
b. Assignment
c. Assignment and factoring
d. Assignment, factoring, and discounting

10. What are the three types of period costs that a lessee experiences with a finance lease?

a. Interest expense, amortization expense, executory costs

b. Amortization expense, lease expense, executory costs
c. Executory costs, interest expense, lease expense
d. Lease expense, amortization expense, interest expense

DIFFICULT

1. The restatement of historical peso financial statements to reflect the general price level
change results in presenting assets at

a. Fair value
b. Current replacement cost
c. Lower of cost and net realizable value
d. Cost adjusted for purchasing power change

2. Gain contingencies that are remote and can be reliably measured

a. Should not be reported or disclosed

b. May be disclosed in a note to the financial statements
c. Must be disclosed in a note to the financial statements
d. Must be reported in the body of the financial statements

3. The following information is from Tornado Company's first year of operation:

Merchandise purchased 450,000

Ending merchandise inventory 123,000
Collections from customers 150,000

All sales are on account and goods sell at 30% above cost.

What is the accounts receivable balance at the end of the company's first year of operations?
4. Frenzy Company purchased equipment which was installed and put into service on January 1,
2017 at a total cost of P1,329,200 with a residual value of P37,600.

The equipment is depreciated over eight years by the double declining balance method.

What amount of depreciation expense should be recorded on the equipment for 2018?

5. Ranger Company purchased a jewel polishing machine for P3,350,000 on January 1, 2017 and
received a government grant of P250,000 toward the capital cost.

The accounting policy is to treat the grant as a reduction in the cost of the asset. The machine is
to be depreciated on a straight line basis over 20 years and estimated to have a residual value
of P200,000 at the end of this period.

What is the carrying amount of the asset on December 31, 2018?

a. 2,800,000
b. 2,810,000
c. 2,860,000
d. 2,900,000

6. Bonds for which the bondholders' names are not registered with the issuer are called

7. Ice Company had the following transactions on January 1, 2018, its first year of operations:

Sales (90% collected in the first year) 750,000

Disbursements for costs and expenses 610,000
Bad debt write offs 125,000
Purchase of equipment on account 350,000
Disbursements for income taxes 240,000
Depreciation of equipment 100,000
Amortization of patent 100,000
Proceeds from short-term borrowings 325,000
Purchase of building on account 240,000

What is the ending cash balance at year-end?

8. Legion Company produces a single product. The costs accumulated at the end of the period
are as follows:

Raw material purchases 67,000

Depreciation on manufacturing equipment 10,000
Sales commissions 20,000
Factory labor 36,000
Shipping costs on units sold 42,400
Materials used in production 81,400
Property tax on manufacturing equipment 10,000
Cost of goods manufactured 130,000
Cost of units sold 165,000
Raw materials, beginning 34,200
Finished goods, beginning 98,700

There was no work in progress at the beginning of the period.

How much is the work in progress at the end of the period?

a. 7,500
b. 7,400
c. 7,300
d. 7,200

9. Lower of cost or net realizable value

a. Is most conservative if applied to the total inventory

b. Is most conservative if applied to major categories of inventory
c. Is most conservative if applied to individual items of inventory
d. Must be applied to major categories for taxes

10. The following information was obtained from the books of accounts of Queen Company on
June 30, 2018:

Deferred gross profit balance after adjustment 202,000

Total collections on installment sales 440,000
Gross profit rate based on cost 25%

Queen Company uses the installment method of accounting. What is Queen Company's total
installment sales for 2018?

a. 1,560,000
b. 1,450,000
c. 1,300,000
d. 1,010,000
CLINCHER

1. The shareholders of Fat Company approved a five-for-one share split and increase in
authorized shares from 100,000 shares with P20 par value to 500,000 with P4 par value.

The shareholders' equity accounts immediately before the split shares were share capital of
P1,000,000, share premium of P150,000, and retained earnings of P5,250,000.

What is the balance of the share premium after the share split is effected?

a. 600,000
b. 150,000
c. 250,000
d. 300,000

2. On January 1, 2019, Agony Company leased a building to Wrath Company for a ten-year term
at an annual rental of P250,000.

At inception of the lease, Agony received P2,500,000 covering the first two years' rent of
P500,000 and a security deposit of P2,000,000.

This deposit will not be returned to Wrath upon expiration of the lease but will be applied to
payment of rent for the last two years of the lease.

What portion of the P2,500,000 should be reported as noncurrent liability on December 31,
2019?

a. 1,500,000
b. 1,000,000
c. 2,000,000
d. 0

3. At the beginning of the current year, Liquid Company issued ten-year bonds with a face
amount of P5,000,000 and a stated interest rate of 8% payable annually at every year-end. The
bonds were priced to yield 10%.

PV of 1 for 10 periods at 8% 0.46

PV of 1 for 10 periods at 10% 0.39
PV of an ordinary annuity of 1 for 10 periods at 8% 6.71
PV of an ordinary annuity of 1 for 10 periods at 10% 6.15

What is the issue price of the bonds?

a. 4,410,000
b. 4,634,000
c. 4,760,000
d. 5,000,000